SA’s Macroeconomic Situation: - Mole Heap or Volcano? Presented by: Dawie Roodt 22 June 2006

Mole Heap

GDP

Percentage of World GDP ‘04 Source: UNAIDS

GDP Source: UN

Countries Compared to Provinces Source: UN

State Finances

Inflation

Conclusion  Solid GDP growth  Sustainable state debt  Benign inflation outlook: CPIX within target for 32 months  Strong consumer confidence  Strong business confidence

Volcano

Exchange rates Rand

Rand Valuation Gold $800 Rubicon Stock exchange crash ANC, Reds fall Election Exchange controls Asian crises Wakefordgate Rus, Zim, Arg Fin Rand NOFP + NOFP -

Private Sector Credit Extension

Disposable income of households Source: SARB

Household debt to disposable income Source: SARB

Savings to disposable income of households Source: SARB

Debt Servicing Cost

Interest rates

Commodity Prices

Balance of Payments

AIDS Source: UNAIDS

Conclusions  Currency exposed to global volatility  Alarming increase in PSCE  Stellar household debt/disposable income  Lack of ‘savings culture’ by households  Unexpected interest rate movements (on household budgets)  Commodity prices – effect on businesses and inflation outlook  Large current account deficit  Labour productivity  Effects of illnesses (AIDS, etc.) on workforce  Transparency of Monetary Policy Authorities – CPIX targets  2010 and beyond…?

Mistakes made in Africa Private Property Rights Regulated Prices Idolise Leaders Marketing Boards Nepotism Incompetence Corruption Poor Fiscal Discipline Poor Monetary Policy Unrealistic Projects ????????

Asset Allocation Reason Equities ( )Demand/Rand/International BondsInflation/Supply CashShort Interest rates PropertyProperty Cycle – Heavy Overweight – Overweight – Neutral – Underweight – Heavy Underweight

Local Equities, 2005 Economic SectorAllJSE Sector Agri, Forestry and Fishing Food Prod Mining and Quarrying Mining, Platinum, Gold, Coal Manufacturing Auto, Basic Ind, Beverages, Chem, Elect, IT Hard, Pharm & Bio, Steel & Other Electricity, gas and water Oil & Gas Construction Const & Build Trade, hotels and restaurants Cyc Cons, Food & Drug, Gen Retail, House Goods, Non- cyc Cons Transport, storage and comm. Telecomm, Transport Finance, prop and bus. serv Banks, Insurance, Life Ass, Media & Pht, IT, Property, Support Serv Personal Service Cyc Serv, Health, Leisure Ent, Non-cyc Serv, Person Care